Herman Oil Inc. v. Peterman (S.D.S.Ct., 1994)

Facts: Herman Oil (Williston, N.D.) is a seller of retail fuel; it bought from Canadian refineries and resold most of the fuel to the U.S. In 1990, Herman began reselling directly to Charles Mass, a Canadian purchaser, who then sold the fuel in Canada. In November 1990, Herman discontinued direct sales to Mass, fearing that selling in Canada might jeopardize his supply.

Subsequently, Herman Oil began selling gas to Peterman Oil, a N.D. Corp in trucking and the sale of fuel.

à Herman’s version: Herman alleges that it had no special arrangement with Peterman Oil, and simply sold it fuel. It argued that the fuel fell under the UCC (or NDCC); Herman also alleges that each sales invoice for gas was its own separate K with a unique price and payment terms; that these invoices were meant to be the final expression of the K for the parties; that since the invoices were inconsistent with other agreements, that these were discharged, and Peterman was bound by the terms of the invoice.

à Peterman’s version: Peterman alleges that Herman contacted it to “handle the paperwork” of sales between Herman and Mass, making Peterman a middleman buffer for any reprise from its suppliers. Initially, Mass would write a check to Peterman, and then Peterman would write a check to Herman. However, Peterman and Herman made a deal where Peterman would write a check to Herman, and Herman would hold it until Mass paid Peterman. Peterman also alleges that the K was for a service (e.g. middleman), not a product.

In April 1991, Peterman issues a check to Herman, but Mass failed to pay Peterman. Herman subsequently deposited Peterman’s check, and it came back insufficient funds. Herman then sued the Peterman’s individually to collect on their personal guarantee of Peterman Oil’s obligations.

Trial Court: Court found that a special arrangement (or Peterman’s version of the facts) did exist. The trial court didn’t address whether the K was partially or fully integrated. Since Peterman and Herman had an agreement (e.g. K) not to cash check until Mass deposited his check, the Petermans weren’t liable for the personal guarantee. Trial court dismissed the action; Herman appeals.

ND Supreme Court holding: Affirmed the Trial court:

1) The UCC does apply, and the statute of frauds is met.

2) Under the NDCC (UCC in ND) court must first determine whether parties intended writing to be a final expression of the agreement. The ND Supreme Court has stated the NDCC rejects the assumption that partially integrated Ks act as a final expression of an agreement and also rejects the requirement that written terms must be ambiguous before extrinsic evidence may be considered; it has further held that an assumption exists that parties do not intend the writings to be a final expression (e.g. that it is partially integated) unless the court expressly finds K is fully integrated.

In determining whether writing is final expression, the most important factor is the intent of the parties; intent of the parties is a preliminary question of fact for the court, and the court’s determination on the matter stands unless clearly erroneous. If the trial court concludes that the parties didn’t intend writing as final expression of K, then court may rely on extrinsic evidence to determine the actual agreement. The ND Supreme Court found that the Herman invoice didn’t contain a merger clause, and there is no assumption that parties intended the invoice to so operate. Even if the invoice had operated as a merger K, UCC § 2-209 (1) would have allowed the court to look at extrinsic evidence to establish the commercial context of agreement and the “course of dealings” between Peterman and Herman (e.g. Herman held Peterman’s check until Mass paid).

While trial court didn’t expressly state one way or the other, the ND Supreme Court assumes the trial court found the K to be only partially integrated (because the trial court found the existence of the special arrangement). Since the parties’ intent was for the trier of fact to determine, and the judge’s ruling isn’t clearly erroneous, the trial court’s ruling stands.

3) Herman argues that extrinsic evidence didn’t support the trial court’s finding of a “special arrangement”; however, Peterman produced evidence to such at trial. Since there is conflicting evidence, deference is given to the trial court’s findings and opinions on the evidence and testimony. Therefore, the ND Supreme Court upholds the trial court’s opinion on the existence of the special arrangement.